Posts from February 2012

I've always loved Rodney Dangerfield's Back To School. I laugh out loud just thinking about that film. This week I'm doing my own version of Back To School.

Monday night I did my annual talk with InSITE, the Columbia/NYU joint program that puts graduate students (mostly law school and business school students) into pro bono consulting gigs with startups. Apparently this is the fifth year in a row that I've met with them. The way we do the InSITE talk is I meet with the entire group (there are something like 40 to 50 members) in a classroom. I talk for a half an hour then take questions for half an hour. Then we go around the corner to a pub and hang out for a couple hours. It's the only event I do all year that involves pitchers of beer. And for that reason alone, its one of my favorites.

Then yesterday I went up to Cambridge Massachusetts to visit Tom Eisenmann's class at Harvard Business School. This is the second year in a row I've met with his class. I was interviewed by Jeff Bussgang for 90 minutes. I have to tell you that being interviewed by a colleague and/or peer is so much better. The questions were interesting, insightful, and super relevant. Here's a Storify summary of the session. I refute the word legendary in the title. The rest is spot on.

And finally, I'm headed down to Princeton this morning to talk to JP Singh's computer science class. Again, this is the second year in a row I've met with JP's class. My stated goal at Princeton this morning will be to convince these students to start their careers in NYC's tech community instead of some other startup hub around the world. I'll talk for 30 minutes and then take questions.

You might ask why I'm turning into Thornton Mellon this week. Yes, I do like being on college campuses. The energy, curiosity, and enthusiasm is infectious. But more than that, this is talent development. We want to see more students choosing a career in entrepreneurship, more bright people working in startups, and more bright people working in our portfolio. This year already, I've talked at Columbia twice, Brooklyn Poly once, and now this back to back to back Ivy League week. And more is coming. Talent development is that important to our business and our portfolio.

I've been involved with NYC BigApps since its creation three years ago. It's a great program. NYC opens up some of its data sources to developers who use the data to build new mobile and web apps. The judges vote on them (I'm one of the judges) and there are prizes awareded which total $50,000. A number of startups have come out of this program and I've met quite a few great developers through this effort.

The submissions for year three are in and they are solicting public opinion on them here. There are 96 apps this year to be considered so that's a lot of product to review. You don't have to review all of them (I do) so just go take a look and let the organizers know which ones you think are the best. There are nine days left in the voting phase. There are two popular choice awards that will be given based on the public voting.

All the winners will be announced at the annual BigApps event in late March.

John Revay sent me an email suggesting I write a post on The Board Of Directors. I've got a better idea, a whole MBA Mondays blog series on this topic. I have come to enjoy the series format for MBA Mondays. It works well.

I was just talking to my boss about New York's tech scene and the types of stories I should go after. He wants me to get a little personal like digging into how founders and investors are actually using all this money flowing into the city. But beyond the typical, there must be some stories that have gone unreported or overlooked. Like maybe there's a new Brookly luxury bulding where 10 startup founders all bought homes, or there's a restaurant that all the tech geeks in the city go to to close their deals. Or there is a tailor from France who makes all the suits for the city's tech entrepreneurs. I am not saying any of these are THE story, but it's just the type of story I would love to tell.

The Reddit community has posted a proposed piece of legislation they call The Free Internet Act on Google Docs. I've just taken a look at it and will need to think about all of these provisions a bit before I have an opinion about whether this is a sensible proposal or not.

But regardless of whether anything comes of this, I want to make a larger point about transparency in government.

A number of NY tech community people met with a US Senator in the USV event space a few weeks ago to give our views on tech issues coming down the pike. At one point in that meeting, the Senator's staff talked to us about the cybersecurity bill, which at that time had not been released. We asked how long it had been in the works. The answer was quite a while. We asked how long would be available for comment once it came out. The answer was about a month. None of this was this Senator's doing. We were just being informed about what was going on and how we should engage in the process. We were encouraged to read the bill and give our elected officials our opinions on it. And we are doing that. You should do the same. The bill is linked to earlier on in this paragraph.

But as we were having this conversation, my partner Albert asked why bills aren't drafted in public. He suggested an approach that is almost identical to the one that the Reddit community has taken with the Free Internet Act. And the Senator's staff said that such radical transparency wasn't likely to develop in Washington any time soon.

When an important piece of legislation is drafted in secrecy, such that Senators and their staff members don't even know what is going to be in it, and then is put out for voting on a very fast track, people are going to be suspicious. And suspicious citizens don't make for a healthy democracy.

If nothing else comes of this Reddit process, I'd at least hope that we show Washington the power of an open debate, commenting, and editing process. For that reason alone, I'm going to put some real energy into The Free Internet Act. I hope you do too.

As I suspected they would, the team behind avc.fm reached out soon after that tweet and we've been trading emails since. That team is called Voice Bunny and their business is "voice talent via an API". If you want to see a reasonably technical and critical discussion of Voice Bunny, here's a Hacker News thread on the service.

The main knock on Voice Bunny in that HN thread is the cost. So I asked the Voice Bunny team about that. They said:

Our prices are coming down fast: Most professional talents are used to doing a few recordings per day and waste a lot of time auditioning. We are teaching them that VoiceBunny allows them to be more productive and, thus, charge less per recording. In just three weeks the median prices have dropped 40%. We expect the prices to continue to come down as more projects flow through VoiceBunny.

Royalties: We are extending our API so that our clients can build apps like avc.fm by sharing royalties with our talents. That way our clients won't have to pay anything up front. Most professional talents are used to be paid with royalties and they are welcoming the idea.

In any case, I like they way they used a stunt to get my attention. So much more effective than sending me an email saying "I'd like to come talk to you about a new project we are working on". So I'm going to start auto-embedding the avc.fm voice overs at the end of the posts on AVC (via the SoundCloud embed of course). I need to get Nathan to help me with that so I'm not sure when today's will appear. Going forward it should only take an hour or so each day.

If you'd like to subscribe to AVC on your SoundCloud mobile app or via iTunes or via RSS, here are the appropriate links to do that:

I met with a group of very experienced and sophisticated investors yesterday who make up the investment committee of a large charitable foundation that is an investor in USV. I gave them a two minute brief on our macro investment thesis (large networks of engaged users that can disrupt big markets) and then took them on a tour of some of these large networks (Lending Club, Kickstarter, Etsy, Twitter, and Codecademy). Then I took questions.

This group doesn't spend a ton of time on AVC, Techmeme, Hacker News, or the tech industry in general. And yet the questions they asked me were as good as I ever get. I guess four decades of investing teaches you a lot.

One of the best questions I got was "when do you decide to sell?". Such a great question and such a hard one to answer. I've got scars from this one.

I explained that first and foremost, we generally don't make that call. The entrepreneur and her management team generally makes that call and the board is asked to ratify it.

But when and if we get to weigh in on the timing of the exit, my view is that you look to exit your weakest investments as soon as you can and you let your winners run as long as you can.

USV 2004 is instructive. Between 2004 and 2008, we made investments in 21 companies. So the youngest portfolio company in that portfolio is four years old now. Most are five to six years old. And a few, like Meetup and Return Path, are ten years old or more. We've exited six of the 21 investments, you can see them here, under past investments at the bottom.

We still have fifteen investments active in that portfolio including Zynga and Twitter and we own large blocks of stock in both of those companies. We own stakes in thirteen other portfolio companies most of which we believe are super strong companies that are building large and sustainable businesses. We will likely exit a few weaker investments in that portfolio over this year and next. But there are at least ten companies in the USV 2004 portfolio that we would be happy to own for the rest of this decade.

This does create a bit of an issue in that we raise ten year venture capital funds. So we are supposed to wind things up in the 2004 fund in another two years. But I am fairly sure that my partners and I and our limited partners will be happy to let this fund play itself out over a longer period of time.

I've made the mistake of exiting investments too quickly. Back in the middle of 2007, my previous firm Flatiron exited our investment in Mercado Libre at the IPO selling our entire position for about a 10x gain. In the almost five years that MELI has been public, it has gone up 5x. So had we held our position for another five years, we'd have made 50x instead of 10x. That stings. Lesson learned.

When you have portfolio companies that are category creators, category leaders, who are well managed, and growing 50% per year or more and delivering 20-30% pre-tax margins (or more), and who have no existential threats to their market leadership, you might want to hang on to them for a bit. They may be just getting going on the valuation creation thing.

One of my favorite people in the tech business is Anthony Volodkin, founder and operator of the Hype Machine. Anthony's a media hacker in the greatest sense of the word. He builds apps that allow us to discover and enjoy new things.

And his latest project, really just an experiment, is called Kickstumbler. I found out about it this morning. Think stumbleupon meets kickstarter. Give it a try.

But the coolest thing of all is this linear video version of Kickstumbler. I'm going to point my big screen TV in the family room at video kickstumbler tonight and just sit back and enjoy all the awesomeness.

I've been reading The Corrections this long weekend. This book came out over ten years ago, but I'd never read it so I pulled it out of our bookshelf and cracked it open after we got off the mountain on Saturday. I hope to finish it on the plane ride home today.

The father figure in the book is Alfred. He's a railroad engineer who also dabbles in metalurgy experiments in his basement. He's a familiar character to me. My dad is an engineer and I have an engineer's brain as well. Apparently so does my friend Brad Feld.

The Gotham Gal tires of this mindset at times. She will say in exasperation "you can't solve every problem Fred." But that's how my mind works. Find problem, solve it, move one to the next one.

My engineer tendencies are reinforced by the work I do. Most entrepreneurs we back are also engineers. They find a problem and they set out to solve it. That journey is often a startup and we are along for the ride. Solving problems creates value in our business. Value creation is success. So the feedback loop is reinforcing and problem solving is the name of my game.

But the Gotham Gal is right. I can't solve every problem as much as I want to. The person or organization that has the problem has to want to solve it too. And when the will is not there, as clear as the solution is, its best to leave it alone.

I've been trying to decide what to do on the subject of online piracy. I think there are good solutions to the problem that involve technical approaches that leverage the work the technology industry has done with domain name registration and spam/virus/malware filtering. I laid them out in a discussion I participated in last week at the Paley Center. But the entertainment industry must want to solve the core problems, not just the symptoms. And it is not clear to me that the entertainment industry wants to solve the problem. So maybe I should move on.

The same is true of the companies we work with. They often have problems that can be solved, and have been solved in many other companies. But if they do not have the will to solve them, then all of our effort to address the issue is wasted. Our desire to solve the problem will simply come across as interference, meddling, or worse.

So as I move from youthful enthusiasm to elderly wisdom, one of my development goals is to supress the desire to solve every problem and focus on the ones where I can make a difference. I'm not there yet, but I'm working on it and making progress.

This is the final post of the MBA Mondays series on The Management Team. It is my favorite MBA Mondays series so far. The guest posts in particular have been fantastic.

Back when I started this series, I outlined it and decided that I would ask Jerry Colonna to wrap it up for us. Jerry, when he was my co-founder at Flatiron, taught me the people side of the venture capital business. And now as CEO coach to a number of USV portfolio CEOs (and many others), he is teaching the people side of the startup business to some of the best entrepreneurs we work with. He is a people person through and through and management is all about people.

So with that forward, here is Jerry's guest post. It is fantastic and he even threw in a section for Grimlock 🙂

To me, the hardest part of scaling people is learning to lead your self.

The Crucible

They often come to me, their coach, because they don’t have any place else to put the feelings. They’ll sit on my couch, or pace while they talk on the phone, pausing as we grapple with issue after issue after issue. The common denominator is always people. When I first take on a client I warn that I don’t have a magic wand. Nevertheless their wish for some elixir to mend their relationships is heart-breakingly visceral.

When they start, they often think the hardest part is figuring out what to do but they’re inevitably knocked on their ass by the task of leading. And when they make mistakes–when they fail to lead–their identity, self-esteem, and ability to provide—as David Whyte notes–sometimes explode.

We all too often break ourselves in the work of becoming a CEO, a manager, a leader.

The only answer, the only balm against the inevitable existential pain of becoming the leader we were born to be is to see the lessons implicit in the practice of becoming.

“In the course of studying how geeks and geezers became leaders,” writes Warren Bennis in the introduction to his classic, On Becoming a Leader, “…I discovered that their leadership always emerged after some rite of passage, often a stressful one. We call the experience that produces leaders a crucible…the crucible is an essential element of the process of becoming a leader…Some magic takes place in the crucible of leadership…The individual brings certain attributes into the crucible and emerges with new, improved leadership skills. Whatever is thrown at them, leaders emerge from their crucibles stronger and unbroken.”

The magic, the alchemy, occurs when what we do mixes with who we are and is cooked by the heat of what we believe.

Take as an example a client I worked with intensely over the last few weeks. She and a co-founder have been killing each other (okay, I have a flair for the overstatement…still, they have both been getting sick with a host of ailments—migraines and stomach problems). The arguments had gotten so bad that neither could stand to be in the same room with the other. Even I was exasperated. During one late night call, I asked my client to forget, for a moment, whether her co-founder was right or wrong. “I don’t care who’s right,” I said with my voice rising. “The only thing we have to focus on is what are you supposed to be learning from this.”

There was a long silence. I thought, “Okay. You’ve really pushed her too far. You and your woo-woo ‘lessons in the pain’ crap.” But then: alchemy. She opened up. “This is really shameful to admit,” she began, “but I know I’m a pain in the ass because I have to be right, all the time. I know it’s wrong but I can’t stop myself.”

And with that we had something to work with. I pressed her: Given this tendency, what do you really believe? What values do you hold? What kind of company do you want to build? And what kind of adult do you want to be?

Over the next few weeks, on guard for her need to be right, we carefully went to work changing her approach to the co-founder. For her, the crucible moment came in facing her shame, acknowledging who she really has been and as a result she got to choose how she wanted to manage and who she wanted to be.

The Buddhists teach that for the steadfast warrior to emerge, we’ve got to break open our hearts to what is.

Eat Me If You Wish

“One day,” begins a story re-told by Aura Glaser in the latest issue of Tricycle Magazine, “[the Buddhist saint] Milarepa left his cave to gather firewood, and when he returned he found that his cave had been taken over by demons. There were demons everywhere! His first thought upon seeing them was, ‘I have got to get rid of them!’ He lunges toward them, chasing after them, trying forcefully to get them out of his cave. But the demons are completely unfazed. In fact, the more he chases them, the more comfortable and settled-in they seem to be. Realizing that his efforts to run them out have failed miserably, Milarepa opts for a new approach and decides to teach them the dharma.

“If chasing them out won’t work, then maybe hearing the teachings will change their minds and get them to go. So he takes his seat and begins… After a while he looks around and realizes all the demons are still there…At this point Milarepa lets out a deep breath of surrender, knowing now that these demons will not be manipulated into leaving and that maybe he has something to learn from them. He looks deeply into the eyes of each demon and bows, saying, ‘It looks like we’re going to be here together. I open myself to whatever you have to teach me.’

“In that moment all the demons but one disappear. One huge and especially fierce demon, with flaring nostrils and dripping fangs, is still there. So Milarepa lets go even further. Stepping over to the largest demon, he offers himself completely, holding nothing back. ‘Eat me if you wish.’ He places his head in the demon’s mouth, and at that moment the largest demon bows low and dissolves into space.”

Surrendering to the demons that torment your organization does not mean abdicating your responsibilities to manage. You are still responsible for dealing with the reality of what is. In some cases, the demon is the wrong vision for the company. In others, it might be that you’ve hired the wrong people. In still others, it might be your own failings—like an inability to admit that you’re wrong.

But in all cases, allowing your self to be eaten by the demon that remains—acknowledging the ways you contribute to the problem without descending into pointless self-flagellation–adds to the heat beneath the crucible. Without heat, there is no alchemy.

On Becoming Your Self

When I was a young Padawan, I remember lamenting to my therapist about my own fears as a manager. After a series of infuriating questions, she got me to admit that I was trapped by my own beliefs about success. I finally admitted I would never be satisfied until I was as successful as Bill Gates.

Being myself was never good enough and, as a result, being comfortable in my own leadership was impossible.

“If you bring forth what is in you, what you bring forth will save you. If you do not bring forth what is in you, what you do not bring forth will destroy you.” Jesus, Gospel of Thomas

It was only later, after allowing myself to bring forth what is in me, that I emerged not only as a leader but a Jedi master.

Joel Spolsky, in his guest post for this series, tackled what I hear all too often in my workshops. He takes the Steve Jobs Question head on.

He writes:

“And yes, you’re right, Steve Jobs…was a dictatorial, autocratic asshole who ruled by fiat and fear.” But, importantly, he points out “you are not Steve Jobs.” Just like I am not Bill Gates.

Indeed, I think what Jesus taught was a simple truth: the only choice that doesn’t destroy you is to be the leader you were born to be. The alchemy of becoming your self is the ultimate act of leadership.

Listen close enough and you’ll hear echoes of this from every conceivable source.

Phil Sugar, tells us who he is and what he believes in the simple statement that, “My biggest legacy is the network of people I’ve hired and what they’ve gone on to do.”

Matt Blumberg, having gone through his own crucible challenged conventional wisdom (and the advice of Fred), choosing instead to invest in his team. “We consistently work at improving our management skills,” he notes adding that, “We learn from the successes and failures of others whenever possible.”

JLM writes:

“Develop a philosophy of management. Write it down. Try it out on some folks whose wisdom you admire. Put it to work…” and, my favorite, “Live it.”

I read in all these thoughts a steady, consistent wisdom: the wisdom of knowing yourself, your own beliefs, and living them.

Enduring the alchemical crucible requires developing the capacity to reflect, to turn the pain of the everyday life as a leader into lessons. Every wisdom tradition I’ve ever encountered—from Fred’s blog to the words of sages—ultimately demands the same thing: we must go inward.

Joseph Campbell, writing in The Power of Myth, says, “You must have a room, or a certain hour or so a day, where you don't know what was in the newspapers that morning…a place where you can simply experience and bring forth what you are and what you might be.”